We work for most of our lives to provide the standard of living we desire for our families and ourselves and most of us would envisage passing on our wealth to our beneficiaries. However inheritance tax is affecting an increasing number of people as higher incomes, increased property values and investment growth have ensured that the average estate value is in excess of the Inheritance Tax starting point.
It is possible with careful planning and good advice to mitigate or altogether avoid Inheritance Tax charges.
The first action is to draft or review your Will to ensure that your wishes are properly carried out. We then review the tax efficiency of your Will taking into account your personal circumstances and domicile status, before carrying out a full valuation of your estate.
Our valuation can provide you with a comprehensive overview of the 'lifetime giving opportunities' that are available to you, calculate your current Inheritance Tax position taking into account any Capital Gains Tax implications and highlight potential beneficial amendments to your Will.
We will also consider the use of exemptions, the use of Trusts, the ownership of the matrimonial home and the implications of long term care funding. We work with the major Insurance companies with a view to using the various Discounted Trust arrangements for planning purposes and the use of insurance policies to fund potential future Inheritance Tax liabilities, to help ensure that your bequest is transferred intact.
Inheritance inclusions
A person's estate includes everything owned in their name; the share of anything owned jointly; gifts from which they keep back some benefit, such as a home given to a son or daughter but still lived in by the parent; assets held in some trusts from which they receive an income.
Against this total value is set everything that the deceased person owed, such as, any outstanding mortgages or loans, unpaid bills, and costs incurred during their lifetime for which bills have not been received, as well as funeral expenses.
Avoiding IHT
Any amount of money given away outright to an individual is not counted for tax if the person making the gift survives for seven years. These gifts are called 'potentially exempt transfers'.
Money put into a 'bare' trust - a trust where the beneficiary is entitled to the trust fund at age 18, counts as a potentially exempt transfer, so it is possible to put money into a trust to stop grandchildren, for example, having access to it until they are older.
Gifts to most other types of trust will be treated as chargeable lifetime transfers. Chargeable lifetime transfers up to the threshold suffer no tax but amounts over are taxed.
Gifts that are exempt
Some cash gifts, up to a maximum annual limit, are exempt from tax regardless of the seven-year rule. They include: wedding gifts to your children, grandchildren, and wedding gifts to anyone else; other gifts; gifts to any number of people each year; gifts to charities, the National Trust, national museums, the main political parties and most registered housing associations.
Regular gifts from after-tax income, such as a monthly payment to a family member, are also exempt as long as the giver still has sufficient income to maintain their standard of living.
Any gifts between husbands and wives are exempt whether they were made while they were both still living or left to the surviving spouse on the death of the first. Tax will be due when the surviving spouse dies if the value of their estate is more than the combined tax threshold.
Current IHT thresholds and interest rates can be found at: hmrc.gov.uk/inheritancetax/index.htm
Levels and bases of and reliefs from taxation are subject to change and their value depends on the individual circumstances of the investor.
The Financial Conduct Authority does not regulate taxation & trust advice, will writing and some forms of offshore investments.